The Case for Contracts in 7 Reasons

Every company has contracts that have the potential to increase revenue and maximize value. How can companies best use them to serve the right purposes and meet goals?

Contracts are a vital part of building relationships and completing business transactions. But what other purposes do they serve? In 2017, the International Association for Contract & Commercial Management (IACCM) conducted a study on what people found were the most relevant reasons to create contracts.

Their findings?

Contracts have many purposes and thus many different reasons for why they are important. For starters, contracts are the main source of revenue and relationship building for an organization. Let’s take a look at a few of the key elements of why contracts are an important focus for a company:

1. They serve as a record of commitments for both parties

At their very core, contracts are relationships. Two parties agree to work together, and forge a connection that if fostered well and beneficial on both sides, can last years. A contract is the visual representation of that relationship.

Contracts also hold each party to their original agreement. In a SaaS contract, for example, one party agrees to provide the other with software for a specified amount of time, and the other side agrees to pay the provider for that same amount of time. The contract is the trail that holds both sides accountable for the terms they set at the beginning of the relationship.

2. They prevent conflicts and mitigate risk

Contracts often go through a negotiation process that ensures both sides are getting the best deal possible. Good negotiation should lead to a mutually successful outcome that prevents conflict down the line and sets the foundation for a strong partnership moving forward.

When managed correctly, contracts should have a comprehensive audit trail of every change, comment, and edit made. Many modern businesses have all their processes automated—with this exception. Emails back and forth are difficult to track down and compare versions. A contract lifecycle management platform should have online negotiation with a comprehensive audit trail so everyone can see who made what edits at any moment in time.

3. They help an entire organization maintain compliance

Unless employees have a legal background, it’s likely they’re often not thinking about compliance. Having a process set in place for contracts, or better yet, a contract management platform in place, helps employees remember they need to create a contract that has to be approved by Legal or another party.

4. They serve as a collaboration and communication tool

From their very creation, contracts are by nature relational and collaborative. Teams can work together to determine their needs through the creation of a contract, building healthy communication and opening up collaboration across departments.

Once the contract is sent out to a third party, collaboration continues at the start of a business relationship. Negotiation can be used as a tool to foster a high quality of collaboration. After a contract is signed, both sides can feel confident in the final outcome because of solid communication.

5. They help generate revenue

Contracts are the binding agreement that says one side will deliver services in exchange for payment. Being able to have contracts processed efficiently and under the right terms helps companies generate more revenue. A blockade to a signed contract means a blockade to more revenue. Faster contract processes mean organizations are able to sign more deals and bring in more income.

Generating more revenue isn’t just about the contract itself, but the process around it. That’s why it’s important to look at what tools a company is using for contracts. Being stuck in the past with PDFs, email, and a repository of documents on a desktop isn’t going to help bring more revenue. To move to the future, the entire process, from beginning to end, has to be efficient and centralized in a single source of truth, like a contract lifecycle management platform.

6. They increase operational efficiency

Looking at contract processes and evaluating the greatest needs for improvement will help organizations work more efficiently as a whole. Working faster and smarter means using the right tools. Again, a contract management platform is one of the best ways to automate contract processes. Instead of tedious emails, a few clicks means an approval is on its way, and signatures take days or hours, not weeks or months. Having all people, processes, and documents in one place is critical for aligning with the current pace of business.

7. They extend a company’s brand and values

Although this may not be the first thing that comes to mind when most people think about contracts, they are an extension of company brand. Sending out a contract is a symbol that an organization cares about having a detailed record of a relationship that they are making a commitment to. Everything from wording to negotiations gives each party an idea of how the other functions. A solid company brand shows through care in contract creation and the interactions that follow.

The reasons to pay attention to contracts are clear. Every organization has contracts—from the first employee who is hired through every deal signed. Ensuring processes are efficient and the tools being used are the best will help make each of these seven reasons stronger.